Underwriting / Advertising

_______________________Wisconsin Community Media

2015 Spring Conference

Hilton Milwaukee City CenterMilwaukee, WI

  April 30 - May 1, 2015

Presented by: Brian T. Grogan, Esq

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Question

How do community programming centers make up revenue lost from decreasing franchise fees or reduced/eliminated PEG fees?

First – why is this happening now?

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Problem Cable operator revenue is not growing

• Thus franchise fee revenue is relatively static

Cities cannot impose franchise fee on:• Telecommunications – regulated by PUC• Broadband – regulated by FCC

Community programming centers depend on two types of revenue to operate:1.Franchise fees

– if city dedicates a portion for local programming

2.PEG fees

– except state franchising statutes – Wisconsin

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Why This is Happening Now? Some subscribers are disconnecting from

cable• Growth of DBS has been significant• Over the top cable is having an impact• Wireless devices• Economy – high cost

Millennial generation not dependent on cable• Few college students subscribe to cable• All college students have broadband

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DBS Impact on PEG No local or state franchise

No franchise fees

No PEG fees

No local PEG content

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Cable Industry Revenue (,000s)   Year Res Video Other Rev Total Rev 1996 $24,136 $2,984 $27,120 1997 $26,270 $3,532 $29,802 1998 $27,626 $6,152 $33,778 1999 $30,050 $7,341 $37,391 2000 $32,541 $9,575 $42,116 2001 $35,734 $9,743 $45,477 2002 $36,738 $11,160 $47,898 2003 $39,338 $15,056 $54,394 2004 $41,813 $18,212 $60,025 2005 $43,832 $21,846 $65,678 2006 $46,518 $25,354 $71,872 2007 $49,105 $29,719 $78,824 2008 $51,811 $34,470 $86,281 2009 $53,040 $36,861 $89,901 2010 $55,470 $38,310 $93,780 2011 $56,938 $40,660 $97,598

SOURCE: SNL KAGAN – NCTA website (in millions)

Finding New Revenue

PEG organizations Seeking new sources of revenues

Breaking free of years of self-imposed restraint

PEG channels are not limited to noncommercial use.

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Cable Act No prohibition on commercial speech on

PEG

• If a municipality determines advertising is useful to fund programming on local government at work or other appropriate PEG programming, I find nothing in the Cable Act that would prevent a municipality from doing so.

Time Warner Cable v. City of New York, 943 F. Supp. 1357, 1387 (S.D.N.Y. 1996)

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FCC Guidance

Federal law previously permitted a cable operator to:• prohibit the use of a PEG channel for

programming that contains: obscene material, sexually explicit conduct,

indecency, nudity, or material soliciting or promoting unlawful conduct. 

However, the U.S. Supreme Court determined that this law was unconstitutional

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FCC Guidance

Cable operators may not control the content of programming on public access channels• Exception:• Cable operator may refuse to transmit a

public access program which the cable operator reasonably believes contains obscenity.

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Wisconsin State Law

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Franchise

In Wisconsin:• Since 2007 State issues the franchise• No more local franchise

If your city is not in Wisconsin• Must carefully review local franchise with

operator for possible contractual restriction

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Local Code Many cities continue to have antiquated

local code provisions governing cable These cable ordinances often date back

20+ yrs• Well before the 2007 Wisc. state

franchising law These cable ordinances may contain

noncommercial PEG requirements• May contain requirements that channel

time must be made available to residents “Free of Charge”

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Traditional Noncommercial Use

Identification of financial supporters • similar to PBS sponsorships

Solicitation of financial support for • charitable, educational or governmental

purposes Programming offered by • accredited, non-profit, educational

institutions• Telecourses

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Sponsorship One that finances a project or an event

carried out by another person or group Especially a business enterprise that pays for

radio or television programming in return for recognition

i.e. advertising time http://www.pbs.org/insidepbs/guidelines/howt

o.html

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Qualified Sponsorship Activities This is any payment made by a person engaged in a

trade or business for which the person will receive no substantial benefit other than the use or acknowledgment of the business name, logo, or product lines in connection with the organization's activities. “Use or acknowledgment” does not include advertising the sponsor's products or services.

For example, if, in return for receiving a sponsorship payment, an organization promises to use the sponsor's name or logo in acknowledging the sponsor's support for an educational or fundraising event, the payment is a qualified sponsorship payment and is not subject to the unrelated business income tax.

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Advertising

Generally refers to the sale or exchange of a good or service or • the solicitation of donations, remuneration or

barter Does advertising =• a pastor asking for donations?• a political candidate asking for contributions?• a plea for Save the Starving Children?

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Advertising A payment is not a qualified sponsorship payment if, in

return, the organization advertises the sponsor's products or services.

Advertising includes: • Messages containing qualitative or comparative language, price

information, or other indications of savings or value;• Endorsements; and• Inducements to purchase, sell, or use the products or services.

The use of promotional logos or slogans that are an established part of the sponsor's identity is not, by itself, advertising. In addition, mere distribution or display of a sponsor's product by the organization to the public at a sponsored event, whether for free or for remuneration, is considered use or acknowledgment of the product rather than advertising.

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New PEG Revenue Options

Sponsorships Advertising Memberships Charging for channel time Resale of programming Studio/editing leasing Production services Other?

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Goldberg v. Cablevision Systems

New York has a noncommercial state requirement

PEG producer sought to sell:• $39 duplicate tape or $5 transcript of program

2nd Circuit held• Message would not render program “commercial”• Primary role was to disseminate message• Not to produce financial gain

A cable operator may refuse to cablecast on a public access channel any programming that does not meet the legal criteria for dissemination in that forum.

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Policies Written policy setting forth acceptable

advertising • Avoid viewpoint discrimination

Should a government access channel accept sponsorship/advertising funding from an entity:• That bids on City contracts? • Provides services to the City?• Is currently lobbying controversial legislation

under the purview of the City?• Is a candidate for City office?

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Nonprofit Fears

Detract from the mission of the nonprofit Undermine the organization by introducing

“market forces” Be too difficult or complex to manage Put the “nonprofit status” at risk Impose “Unrelated Business Income Tax”

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Unrelated Business Income Tax

Unrelated business income is the income from a trade or business regularly carried on by an exempt organization and not substantially related to the performance by the organization of its exempt purpose or function.

Additional UBIT Info:http://www.irs.gov/pub/irs-pdf/p598.pdf

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UBIT Analysis

1. Ascertain organization’s exempt purpose• Articles of Organization• Limited by 501(c)(3)

2. Is business activity substantially related to the accomplishment of exempt purpose?

If not, then UBIT

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Consequences of UBIT The business income is taxable; and If the unrelated activity is a substantial

part of the organization’s activities, potential for loss of exemption.

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How Can You Develop Alternative Sources of Revenue

Analyze services you can provide/sell Determine what might be saleable Conduct market research to understand

the profit potential Balance the promise of profit with the

mission of the organization Develop products or services Create a business plan

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Business Plan Details Business model and how it operates Competitive landscape and how the nonprofit

can compete effectively to sell goods/services Structure, roles and responsibilities of staffing

for the business• Stay true to mission statement – discuss with

city Pricing, promotion, packaging, and

distribution of the products/services Financial plan Day-to-day operational plan for the business

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Questions to Think About Are we in a fairly stable financial situation? Do we have core assets/personnel that could be

transformed into saleable products or services? Is there a potential market with a willingness and ability

to pay for these products/services? Would the sale of these products/services be a

complement to, not a distraction from, our mission? Is our staff, board, council, elected officials

• for the most part, open to risk and experimentation? Do we have access to funders who could potentially

provide some startup capital for an earned income venture?

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Processes to Undertake

1. Analyzing assets to determine potential products/services to sell

2. Conducting market research to determine competitors and consumers

3. Pilot testing a product/service4. Creating a business plan including

marketing, staffing, financial model, risks and mitigations

5. Launching the business

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Brian T. Grogan, Esq.Moss & Barnett, A Professional Association

150 South Fifth Street, Suite 1200Minneapolis, MN 55402

(612) 877-5340 phone / (612) 877-5031 facsimileE-mail: Brian.Grogan@lawmoss.com

Web site: www.lawmoss.com

Questions